Trade and Cooperation: A Regional Public Goods Approach

1
Trade and CooperationA Regional Public Goods
Approach

• Robert Devlin and Antoni EstevadeordalIntegration
  and Regional Programs Department
• Inter-American Development Bank
• NetAmericas
• OAS Trade Conference
• Integrating the Americas
•  IIE, Washington, D.C.
• November 20-21, 2002

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Introduction

• Provide analytical framework to study the
  relationship between trade agreements and
  cooperation agreements.
• Based on some stylized facts Simultaneous
  explosion of New Regionalism with growing
  interest in Regional Public Goods (RPGs) in the
  1990s.
• Connect three bodies of literature on trade
  agreements regional cooperation and regional
  public goods.

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Trade and Cooperation

• Rethinking Regional Integration.
• Simultaneous explosion of New Regionalism with
  increasing interest in RPGs.
• The modalities of the T and C nexus.
• The T and C technologies.
• The T and C nexus A Regional Public Goods
  Approach

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Trade and CooperationRethinking Regional
Integration

• Traditional thinking of Regional Integration
  highly influenced by European Model of Trade and
  Economic Integration based on a linear-stages
  approach (FTA ? CU ? CM ? EU / MU) where other
  forms of cooperation (non-trade/non-economic) are
  for the most part ancillary aspects.
• Nowadays, RTAs / RIAs are becoming key
  instruments to respond and manage increasing
  autonomous globalization and technological
  change, where other forms of cooperation became
  an integral part of the process.

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Trade and CooperationRethinking Regional
Integration

• Globalization Technological Change ?
• ? Cross-border interactions ?
• ? Demand for RPGs ?
• ? Optimal provision RPGs (with Public Goods
  characteristics) requires Regional Cooperation
  (Regional Cooperation Agreements) ?
• ? Incentives for Cooperation for the provision of
  RPGs greater if there are economic incentives and
  commercial interests ?
• ? Increase Demand for RIAs.

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Trade and Cooperation Simultaneous explosion of
New Regionalism with increasing interest in
Regional Cooperation
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The Modalities of a Joint Technology The T and
C Nexus

• T
• C
• T C
• T C
• T ? C (or T C)
• C ? T (or C T)

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The T TechnologyOld Regionalism New
Regionalism

• Support ISI Development Strategy
• High external barriers (high trade diversion)
• Shallow Agreements
• South-South only
• No credible enforcement mechanisms

• Support Structural Reform and Liberalization
  Process
• Open regionalism (mitigate trade diversion)
• Deeper Agreements
• Increasingly North-South
• Incipient DSM and improved WTO Rules

• Few incentives for regional cooperation

• Cooperation beyond trade (infrastructure,
  peace/democracy)

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The C TechnologyRegional Public Goods

• Definition RPGs are transboundary public goods
  whose nonrivalry and nonexclusivity properties
  extend beyond national borders, but are contained
  in a well defined set of states or a region.
• Examples preserving rain forest prevention or
  mitigation of natural disasters cleansing a
  lake reducing acid rain power grid and other
  energy projects airport hub-spoke network
  transportation infrastructure transnational
  diseases agricultural and other research policy
  coordination (financial labor etc.).

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The T and C Nexus A Regional Public Goods
Approach

• T
• C
• T C
• T C
• T ? C (or T C)
• C ? T (or C T)

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The T and C Nexus A Regional Public Goods
Approach

• The Wiring
• Negotiating Considerations
• Efficiency Considerations
• Institutional Considerations
• Jurisdictional Considerations
• Role of North-South RIAs

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The T and C Nexus A RPG Approach. The Wiring
(1)
FTAA
PR China
CACM
Hong Kong
Costa Rica
Brunei
Panama
Taiwan
Cambodia
El Salvador
Russia
Canada
Uruguay
Guatemala
Indonesia
Paraguay
Honduras
Brazil
Argentina
Laos
Nicaragua
Mercosur
Japan
USA
Malaysia
Myanmar
Philippines
Mexico
Bolivia
ASEAN
Colombia
Singapore
Chile
South Korea
Venezuela
Ecuador
Bahamas
Thailand
Dominican Republic
Andean Community
Vietnam
New Zealand
APEC
APEC
Intra-LAC in force
Peru
CARICOM
Trinidad Tobago
Dominica
Australia
Intra-Asia- Pacific in force
Barbados
Grenada
Suriname
Jamaica
St. Vincent Grenadines
Intra-LAC Under Negotiation
Antigua Barbuda
Guyana
Papua New Guinea
Belize
St. Kitts Nevis
Trans-Pacific Under Negotiation
St. Lucia
Haiti
Negotiations under strong consideration
Source Ando, Estevadeordal, Miller (2002)
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The T and C Nexus A RPG Approach The Wiring
(2)

• From a rationalistic approach to international
  cooperation, the spaghetti bowl is a reflection
  of the revealed preferences by nation states in
  search of their commercial and economic interest
  as a potential first stage towards greater
  interdependence.
• In this sense, the New Regionalism has created
  the infrastructure or the wiring for an
  effective provision of regional public goods.
  This fact downplays the potential negative
  effects of the spaghetti bowl.

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The T and C Nexus A RPG Approach The Wiring
(3)

• The final use of this infrastructure for
  regional cooperation will depend on the joint
  outcome of two complex and endogenous processes
• (1) Process of inter-state bargaining and
  institutional choices for the provision of
  regional public goods building on existing
  RIAs.
• (2) Process of absorption of minor
  connections by larger ones (For example, in the
  Americas, the effect of an FTAA on existing
  subregional and bilateral agreements).

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The T and C Nexus A RPG Approach. Negotiating
Considerations

• The linkage between RIAs and the provision of
  other RPGs increases the number of negotiating
  issues on the table, creating more margin for
  trade-offs but also increasing the complexity
  of negotiations based on single-undertaking
  principle (I.e., EU Bilateral agreements, etc.).
• Right combination of carrots and sticks
  through technical assistance programs or other
  compensatory mechanisms.

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The T and C Nexus A RPG Approach. Efficiency
Considerations

• RPGs cannot be supplied by national governments
  acting unilaterally. Cooperation will be needed
  and it often requires an agreement supported by
  some institutional arrangements.
• RPGs compare better vis-à-vis GPGs since
  countries in a regional group have greater
  homogeneity and face less barriers in terms of
  asymmetric information.

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The T and C Nexus A RPG Approach.
Institutional Considerations (1)

• RIAs may offer a cost-saving institutional
  architecture to aggregate the demand for RPGs
  among their members.
• RIAs can achieve enough economies of scale and
  economies of scope with respect to RPGs so that
  it would be possible to provide multiple or
  joint RPGs.
• RIAs may increase the credibility and ability of
  a regional group to act jointly to offer
  collaterals to back up loans or other external
  financing for the provision of RPGs.

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The T and C Nexus A RPG Approach.
Institutional Considerations (2)

• The leader country of an RIAs may act as a
  demandeur of RPGs in front of intl donor
  community.
• RIAs may reduce the effect of competition forces
  among regional members that may otherwise inhibit
  an efficient provision of RPGs.
• RIA institutions possess the necessary
  infrastructure to provide RPGs and can also act
  as intermediaries in global networks contributing
  to a more optimal provision of TPGs or GPGs.

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The T and C Nexus A RPG Approach.
Jurisdictional Considerations (1)

• The principle of subsidiarity implies a
  correspondence between the political
  (decision-making) jurisdiction and the economic
  domain of the public goods range of spillovers.
• According to the subsidiarity principle
• GPG should be allocated by a global multilateral.
• TPGs should be allocated by a network of regional
  institutions.
• RPG should be allocated by a regional
  organization.

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The T and C Nexus A RPG Approach.
Jurisdictional Considerations (2)

• RIAs may offer the optimal economic jurisdiction
  for the provision of some RPGs
• Allowing for the internalization of positive
  spillovers
• Reducing transaction costs
• Providing market value to some RPGs
• Promoting evolution of regional institutions to a
  changing environment

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The T and C Nexus A RPG Approach. Role of
North-South RIAs (1)

• However, traditional South-South RIAs may have
  some disadvantages in the optimal provision of
  RPGs due to insufficient economies of scale and
  scope and lack of leadership and capacity.
• North-South RIAs can provide an important
  framework for the T and C nexus, in particular
  when taking into account aid considerations (C
  as Development Cooperation)

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The T and C Nexus A RPG Approach. Role of
North-South RIAs (2)

• Modalities for T and C nexus under North-South
  RIAs
• Quasi Demand-Supply Model (APEC,)
• Supra-Regional Model (Western Hemispheric
  Initiatives/FTAA,..) RPGs provided to multiple
  regions by institutional arrangement of greater
  geographical reach (economies of scale)
• Hub-Spoke Model (EU Bilaterals,) Multiple or
  joint RPGs with non-overlapping spillovers range
  provided by a single institution (economies of
  scope)
• Other Advantages include the increase interest by
  donors since it facilitates monitoring and some
  RPGs benefits can be internalized by the donor.

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Trade and CooperationA Regional Public Goods
Approach
Conclusions

• In the context of the New Regionalism, Regional
  Cooperation is not an ancillary component of a
  RIA but rather an integral part.
• RPG literature provides a useful analytical and
  policy framework to understand the role of the
  New Regionalism and the modalities for a T and C
  Nexus.